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discount window fund. it discounted the terms to overnight rather than some of them had gone out as far as 28 days and further. the fed taking pains to say this is not, not, i underscore, a change in monetary policy. here is the quote from the fed where they said the modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy. it points out that the conditions remain about the same as they were in january. what did the fed say in january? that it would remain exceptionally low for an tended period. the fed is basically taking away those faults that the banks aren't using. they will be borrowing almost $1 trillion between the discount window and the taf combined. yesterday we saw it's only $30 billion now. let's take a look at the history for this.
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you can see it's reducing the fed. it's one of the first responses to the crisis back in '07 to cut it from 50 to over 100. then it created the taf to auction off those funds. i will tell you, did they go back to the 100 or did they take here at 50, i think there's a good chance that the fed could stay here at least for a while. there is no additional imminent hike in the discount rate over the fed funds here, that there's no magical number, about 100. the fed cut back down to 50, you remember, on the way down and there weren't a whole lot of takers there. so they could be comfortable. given what happened with jobless claims yesterday, i wouldn't be in such a hurry now to expect further fed moves now.
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they're selling this as a normalization. i'm inclined to take them at their word. >> steve, do you expect that those who put off a hike to start rationing those expectations in. historically, discount rate hikes coincide with some fed rate hikes. >> right. and what was the term you used there? historically. this is anything but historic. this is unusual, right? this is the fed normalizing. what one fed insider told me yesterday, melissa, was this. it was that the chance of a right hike today is no greater or lesser than it was the day before the fed hiked the discount rate. this is -- they're trying to be very clear that this does not change the outlook or the path or the trajectory, pick the word you like, for monetary policy. they're trying to be strident about that.
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>> steve, if all that is true, why the intermeeting move? >> you know, i think the symbolism of this is such that it is divorced from the making of monetary policy. >> right. i understand. but they did not have to do this in between meetings. in that respect, people will want to see it as some kind of shot across the bow. >> carl, if they do it at a meeting, then isn't it monetary policy, right? >> yeah. that's what i'm getting from other economists, steve, overnight, yeah. >> remember, the federal reserve board is the one that did this and accepted the offers. i'm not quite sure how that works. i think this is basically by design. but the federal reserve board is the one that makes this change, not the fomc, the federal open market committee. so i think the symbolism of this, carl, is to divorce it from monetary policy. >> that's a good point. we'll talk about the reaction from around the world. steve, i'm glad we found you, even on vacation today. we have the global market reaction covered in london.
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chloe cho is in singapore. here in the states, rich person sneen is going to be with us all morning long. in the meantime, we'll take a look at what happened to equity futures. asia off about 2%. nikkei, that's about the worst in two weeks. it's hard to argue the market pairs on fire, necessarily. equities are off the lows and we're looking at futures about 50 points or so below fair value. we've gotter andations happening today so it will be a volatile session. oil off, not a surprise, to $1785. the ten-year note was relatively stable, some have argued. the two-year got to just under 1%. the dollar obviously is stronger today, an eight-month high on i guess the basket in the euro and it is below 1.35 once again. gold, we'll see if it lost ground on the yellow metal today. 9.40 at $1109.30. first let's go to london and
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check in with what is going on with steve sedgwick. >> hi, carl. this market has rallied four successive sessions. we've got a very good foundation. we've rallied across the board. not due in small part to very good numbers out from nestle. we know that our investors are looking at individual companies. and a company like nestle is doing rather well on its like for like figures, up over 4% and they've got cash to burn as the company sold $28 million stake in alcon. so it has a lot of cash. what is it doing with it? increasing the dividend by 14%. it's announcing a new buyback, 10 billion swiss francs. they refuse to get involved in some of these high profile bidding wars, as well. but nestle is helping european corporates. that being said, there are some big negatives out there.
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the figures are pretty awful, 79% in overall profit. this is a group reviewing its belgium operations, real issues there, and a company which is still looking to cut costs and cut costs aggressively. 4.5 billion euros of savings by 2012. does that sound like a company that believes we have a sustainable recovery on the way? the world's largest cementmaker, latharge is recovering somewhat. that is it in europe. let's get out to chloe who can run us through the asian session. >> thank you so much, steve. a lot of selling pressure here in asia. it's interesting because the markets were sort of in a holding pattern for most of the morning session. as we headed through the mid day afternoon session, investors bailed out of equities pretty much right across the board.
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of course, the selling pressure was much greater in hong kong. no lead coming from shanghai and taiwan because those markets are still closed for the lunar and new year holidays. but the going concern for investors as to hoe the shanghai market will react. that happened after the close last friday. the hang seng skitting below the 21,000 handle today, down 276%. a lot of selling pressure there. even banks, the mainland banks listed in hong kong had a lot of red right across the board. we had comments from rba's governor suggesting that they would be looking at a more normalized rate environment going down the road, but those comments didn't catch attention today. a lot of market participants factoring in a 40% chance of a rate hike when the rba meets in early march. take a look at japan.
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we had comments from the finance minister saying that they are going to work with the boj despite deflation which is a really big problem, but not really spelling out how they intend to do that. the nikkei losing steam by more than 2.1%. we had with a lot of confusion as to whether akio toyo day, the toyota president, is going to head to capitol hill next week. but in the end, he will be doing so, bowing to mounting pressure. south korea, banking shares weaker and tech shares weaker, as well. so the markets pretty much closing out this friday sigz, closing out the week on a down note. going forward, a lot 06 attention focused on how the chinese markets in shanghai, given that we've got a couple of things on the plate here, the rrr hike which they haven't digested, the fed move, so it will be a really interesting move that we look forward to next monday. now back to you.
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>> what is the reality, is the fed's move a signal that the economy is back out of the woods? let's ask our guest host, wall street vernal rich bernie, michelle gerard and ridgewood capital center strategist alan gale. you're chomping at the bit to get in on the discussion. but does this mean that the fed is seeing something that perhaps the rest of the market participants are not in terms of an improving economy? >> well, let's think about the discount rate for a second. one of the things that people have not noticed is in the recent correction in the stock market, the ted spread has narrowed, it has not widened. so i think to any fed or monetary policy expert that says, okay, even if the stock market is worried, this is not an issue for the financial system as it was a year or two years ago. and i think for the fed that is extremely important. headline cpi has averaged 2.8%.
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right now, we're at 2.7. if today's number comes out higher than expected, we will be above the average inflation rate in the last 20 years. the fed has to get behind that or they lose credibility. i know they're playing this as a normalization. find me one cycle where the fed has said it was just a normalization. >> and the last time we saw a discount rate increase was in 2006 and that was as a result of that funds hike rate, as well. call it what you want, but the markets are saying, you know what? we see increases in rates. >> when the fed announced that they were going to wind down their emergency lending program through the cps, that the commercial funding facility, it may be that people didn't understand it, but it's very similar to the same thing. it's exactly as you said, richard. this is about financial market
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conditions improving, not about necessarily the economy improving. all of the emergency lending facilities that were put in place when institutions couldn't get funding are no longer needed because the markets are back at work. so we've seen them scale back and get rid of those emergency funding facilities. the discount rate is supposed to be a penalty rate. you don't want institutions going to the discount window. and so it's always been about the fed funds rate. well, soon, the crisis is to encourage people to use it if they needed it. they narrowed the spread. so i don't think it's about economics or even inflation. >> you're telling banks to be big boys, right? >> right. >> but how do they do that without having the market to
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take it more than that? >> just by trying to be very clear that this is about getting the lending or liquidity, you know, aspects to what they did during the crisis back to normal, not about the tightening credit, you know, they're trying to be very clear that this should be considered along the lines of their announcement, as i said, with respect to their other programs, like the cpff, the taf, all these things that were put in place during those extraordinary circumstances to get money into the system when it needed it. those aren't needed. those are along those same lines. those are divorced from interest rate changes. >> alan gayle, i want to bring you back into the discussion. when were you anticipating the first federal rates hike and has that changed based on what has happened yesterday afternoon? >> well, i was looking for something around mid year, maybe over the summer. my feeling was that the economy was going to continue to plot along in the right direction.
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i agree when what has been said here, that i think the fed statement yesterday afternoon was fairly clear. i think they're trying to take the training wheels back off the financial system so that it can run on its own. that said, i think that most of the bond market participants and the stock market participants have not expecting the fed to begin changing direction and any step, whether it's a leaning or a run in the direction of higher rates is going an adverse reaction. and i think we're seeing that in stock market futures this morning. >> how about the dollar, rich? what's happened there. >> i've been a big dollar bull. my reason is that the tightening would be for the year and we're in a tightening signal. >> have we crossed the line where it will now appreciate and continue to appreciate? >> i think so. part of my theme for the year
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was that the fed would actually be playing catchup as the year progressed. and, you know, if they are going to dilly dally here, which they probably shouldn't do, don't misunderstand my point. >> dilly dally on -- >> on raising rates. i think the economy is on that path and i think as the year progresses, and inflation pressures heat up, i think they will be catching up. >> i'm a bigger advocate of the united states assets than i am about the foreign assets. i think the economy is going to rebound and u.s. assets should be okay. >> michelle, you made et clear that financials have improved. the dollar strength that we've seen, because it's been extraordinary from the beginning of december until yesterday, the dollar has increased by more than 10% against the euro. is that a reflection of reality in the united states in terms of the economy or is that simply
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weakness elsewhere? >> i think it's both. you said the economy is gradually improving and you can see that in the data. concerns about greece have weighed on the performance of overseas securities and i think it brought the risk trade back into place. our expectation, too, is that the fed would be more aggressive this year in terms of raising the fed funds rate because we think that the economy will perform better than people think and all of that would be very supportive, obviously, for the dollar. >> but the way the mood changes this morning. >> if indeed it's seen as a beginning step. even when the fed chairman speaks next week, he will
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reiterate an extended period, which people interpret as meaning no change for six months. >> and i just wonder what happens if that happens on the home front. >> for small companies, tlt another side to this, carl. and that's cash flows. that would translate down to smaller companies, as well. so if your cash flows are more stable, ending will ease up and you'll get -- >> i mean, i guess the one thing is that to the extent that banks are still hesitant, small businesses have to go to banks. smaes been the problem for small business. and to the extent that banks perceive that their cost of funding is on the verge of going up, that does work against the -- it's not as profitable for banks to make loans to small business. i think even if rates start to move up, it's going to be to be
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a profitable proposition for banks to recapture that thread. >> michelle, thank you very much. alan, thank you, as well. and rich, you're stuck with us for the next couple of hours. >> we're obviously going to stay on top of the fed's move. plus, the water cooler story of the day, you already know at 11:00, tiger woods is going to break his silence. we will go to florida and the site of today's big event after a praek. speaking of athletes in sports, did you catch the olympics last night? american figure skater evan lysacek, nearly perfect, taking home gold. >> it was such a special skate, this i can't comment on because i was totally unprepared for it. but the performance, i was very well prepared for.
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welcome back. take a look at equity futures right now. we are about 50 points below fair value. about 8 points on the s&p and on the nasdaq, we are about 11 points below fair value.
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meantime, making headlines this morning, toyota ceo akio toyo day is going to testify next week in front of a congressional panel. he will be the highest profile japanese executive too far face such a grilling from congress. >> at 11:00 eastern today, the world, and we mean the world will be watching tiger woods. the same golfer will take a swing at a public apology, a tightly controlled public media event. our brian shactman is there. we're all wondering to what degree is this going to be about saying i'm sorry and how much of it will be about saying i'm coming back. >> yeah. that's 100% the question we're dealing with, carl. you know the trial dideal. the criticism is about the timing and the control of this announcement. we're supposed to get some clarity on the timing issue.
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and let's talk about quickly while what we do know, i talked at length with a senior pga official last night. he told me that tiger is not officially entered into any pga tournament at this time. and when it comes to timing, it's going to be more about the rehab schedule than the tour schedule. they want to distance themselves from confirming the sex rehab, but the pga confirms this is about the rehab program. if he's in a 12-step program that he has to complete before he gets on the course, this is part of that program that gets him on the course as soon as possible. i also want to touch on what we don't know, people want to know what he looks like, any after effects from the accident, who is going to be there, and, of course, what he will say. i think carl touched on it really well. everybody is debating, is it about rehab or about playing? and it's about both. he has to get done with the rehab part of it so he can get on the course. he would like to go to the master in early april from all the indications that i have.
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and he has to get through this. >> where are you going to be, brian? are you going to be in the room that's a mile away with the rest of the modern media watching this on a television? >> well, you know, i have that option. of course, we can't get into the little room. but we have the option to get into that room at the hotel. but the truth is, they're going to be watching the same thing you're going to be watching. so we're going to be watching tv and we'll be on the phone and we'll see what you see. so there's no reason to be next to a bunch of journalists looking for free food. >> well, i hope america's employers are ready for some productivity loss around 11:00 a.m. everyone is going to stop what they're doing to see what he says. brian, we'll talk to you later this morning. thanks a lot. >> brian mentioned the golf writer's association boycotting them. you have to give them some props for saying, you cannot control the message, tiger, as journalists. pretty commendable there.
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a surprise move after the bell yesterday, are the fed heads telling the truth or is this a move towards tightening monetary policy? we will turn to an all-star team of global strategists for answers. that is next. as we head to break, let's take a look at sectors affected by the fed's move. housing related stocks, those hit by the rising dollar, as well. stay tuned.
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if you thought the week was going to go out quietly, you were wrong. welcome back to cnbc. i'm carl quintanilla along with melissa lee. becky and joe will be back on monday. the fed is making its first interest rate move since december 2008. the central bank hiking its discount rate while assuring the markets around the world costs are not going to rise for consumers and companies. this does not necessarily mean a new chapter. but it's difficult to read between what's going on. >> you jump. steve liesman made a good point yesterday on the show. and this is the first lap in a 15-mile race in terms of monetary policy. but for the markets, the markets are mechanisms that look 15 miles down the road. it's logical to make that leap.
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rich, you made a very good point. but if rates are historically low now, normalization means rates will move higher. you will move back to the historical mean, which is higher than we are now. >> the question heem should be asking themselves now, will fed funds be higher in december 2010? if you answer that question yes, you know what to do. >> exactly. >> and it makes no difference whether they tighten tomorrow or next week. you know what's going to happen. >> right. we are watching the global markets very early this morning. joining us, of course, rich bernstein is here. george, i want to go straight to you. you heard what the trader reaction was last night. is there any jump to that endpoint for the 15-mile race in monetary policy? >> no. the move is more of a psychological move than a textbook move. it's going to affect the
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psychology, like you said, as to the timing of any eventual fed funds rating. i don't think it affects many people as they increase the discount rate. but now you start to think about what is the timing of the increase in the fed funds rate. how does the market react today? no one really had a chance to react in the domestic equity markets unless they were selling in the overnight markets. even though futures haven't traded down that much. i wouldn't be surprised if people are waiting to come in this morning. they're going to take a look at things, assess where they were and do what they need to do. that is a nice retracement and then we had this bound up. so your first target on the down side is going to be the 1040. i don't think that's overly damaging for the market. it's a nice retracement of the rally we had. >> how does expiration play into
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all of this, george? there's more volume on the down days than there are on the up days. we should see more participants in the market. >> and i think the market will be more skittish. i think you're going to see a lot of volume and i would say at the least the pricing in the market will be more jumpy today than you would expect. partly because you have expiration, partly because today is a friday. >> lack, we're going to get ppi. that will be a barrel of fun. your expectation is for it coming in hot, i guess, and if it is, are we going to be glad they made this move last night? >> who knows what each number is. but i think we have inflation -- and our future inflation gauge has been saying that for some time now. however, looking at this whole discussion, right, what i'm struck by is, you know, technically, you know, the
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discount rate doesn't mean all that much. but no matter how you slice it, it's telling you that the fed has a lot of faith in the durability of this recovery. and back in the summer, we were saying no double dip, it's not going to happen, and this is going to be the strongest recovery since the early '80s. and still, for many, many months, just up until right now, i guess, this has been a rodney dangerfield recovery. it has gotten no respect. it is not a forecast, but it is a fact. this is the strongest recovery since the early '80s. you've got unemployment, which already peaked. there are a lot of prominent wall street houses that are saying it's going to keep going up for much of this year and therefore, the fed is on hold for this extended period. therefore, that's how the year will play out. you know, the whole way that you get there is you say
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unemployment has peaked. for this cycle, you've got a cyclical peak in the unemployment rate in october. >> even with 100,000 people coming in, looking for work every month? >> look, it will back and fill. it's not going to go down in a straight line. i think a lot of prominent wall street banks are on the wrong side of this where they're saying you're going to see unemployment peak. that's just not going to happen. we can see that because this recovery, as the fed is implying, is for real. there's no double dip and it's going to sustain. now, it's a bit of a rush to go and say, oh, now we know the fed is going to tighten in six months or whatever. let's look at how they're thinking about the timing. we know there's an exit strategy, but the key sish when. if you look at the theory and you try to figure out what is the theory to fed timing, which
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has always been horrible, by the way, the theory is it's based on an output gap. if you go by that measure, there's a ton of slack and they're not tightening for a couple of years. on the other hand, if you go by the emotional measure, we put a ton of money into the system, trillions of dollars with interest rates at zero, so we have to take it back sooner and bigger than you think. but that's not a theory, okay? so you have this schizophrenic thing. >> i think it's funny you point to confidence. an article in the journal today is all about the woman that did the paintings of greenspan. they sold for $150 grand. the one that sold for 150 is sitting under a bed because of the shame of putting greenspan in your lobby or whatever, you have faith that these guys can land this. >> the fed's timing has always
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been terrible. the fed does lag and the short-term money markets are away ahead of the rates. so, you know, one of the reasons that i have become incrementally thoughtful that the fed was going to tighten was that the rate, although not high, has gone from basically zero, up to about 12 basis points or something like that. it has not gone down, even in the correction. in the stock market, we didn't see the flight to cash that pushed down short-term interest rates. that's telling you exactly what was said before, that the economy is strengthening. >> and to lak's point, cpi being higher, we were just chatting and it thrilled me that i'm not the only conspiracy theorist out there. you thought that the fed somehow caught a glimpse of the cpi and that it might be hotter than expected the. >> we'll see in two hours. if the number comes out higher than expected, we can say the fed must have seen it if the number comes out below, we'll
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all sheepishly turn away. >> george, the traders that you've talked to, either yesterday or this morning, how is their level of comfort about what's happened in the past 12 hours? >> fairly comfortable. actually, you know, we spend a lot of time talking about equities. but for most of the people that i've talked to, they've been more focused on the currency market. you've seen the dollar rally here. we were going over charts yesterday before the announcement. and there was a consensus among currency traders that i talked to about maybe we're choppy in the dollar. you may have people come in and readjust. and no one is talking about -- no one is talking about which currency should i buy. they're almost talking about which currency should i look to sell. everybody is fairly bearish on the euro, everybody is fairly bearish in the british pound and they're buying the dollar against it. not because they want to be long dollar. so it's an interesting conversation. >> we are few with options now because japan and the euro zone
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aren't going to be doing what we just did. >> not at all. not at all. thank you, lakshman and george. we've hear from george throughout the next two hours or so. >> we will take a break and when we come back, we'll talk about dell's troubles. man, after hours, the stock had some troubles after earnings came out. but first, more highlights from last night's olympic excitement. t toah bright of australia winning the halfpipe. (announcer) we're in the energy business.
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dell fourth quarter results came out last night. david, good to see you. we knew going in that with hp and dell, that dell was the more speculative bet. was that confirmed by the results? >> certainly, it was. we were in a situation right now where the company comes out and indicates that they had said about two years ago that they were going to take about $4 billion out of their cost structure. they indicated on the call last night that they were taking about $3.9 billion. and they indicated where this consumer margins are razor thin. from that standpoint, delicated after the close that they'll be basically stepping up their efforts to continue streamlining the company. they don't think they're going to take more capacity out, but it's more focused on product re-engineering. >> was it sdunting or is it consumer based? >> if you listen to the company, they said they found one higher cost. >> chasing parts, right? >> ddr3 memory.
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and given on the retail side they had fixed price deals. you had costs going up and prices fixed. >> why was the street not aware of higher component costs? i would imagine they don't go out there and buy five opponents or so more. >> people look at the supply area in the tech chain with interest. from that standpoint, this is something that obviously could have been surfaced earlier. i think as we step back away from dell and look across tech, to the extent that dell was talking about they went out and talked to their suppliers about having to put more capacity in place, it says dell feels confident about what they see in demand over the next six to ten quarters, 1 1/2 to 2 years, plus they were asking suppliers to step up their efforts to increase capacity. this is something that speaks volumes on behalf of dell, given the fact that historically
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they've been bigger with the enterprise of the business customer in terms of what they think is going to be happening around this windows 7 microsoft upgrait grade cycle. >> i was going to ask you about what last night's results tell us about the acceptable rate. >> certainly, the attached rate. the consumers are buying the pcs. people aren't pushing back on the product. certainly it's very encouraging and certainly from a business standpoint, you have a fairly aged base in terms of installed pcs. and there is a productivity improvement. enterprises are slow to adapt it. obviously, they want to make sure there's no contact between windows 7 and the rest of the soft aware portfolio that the rest of the enterprises have. >> on weakness today, would you recommend buying the stock or prospects of this stock being a speculative play across many firms, does that diminish greatly? is there still an opportunity to think here that the next quarter, that's when they're going to turn around. therefore, if you buy on weakness, that could give you the most upside.
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>> i think much like the mets in the upcoming season, dell has more weapons in its portfolio because of the acquisition of sporell. and people indicated last night that public sector finances being week that you might see, obviously, not a fairly quick p uptake for dell's product. but what dell was saying is as you look in the public sector, public specter has not adopted commercial practices. as you look across various institutions, government universities and such to put in place commercial best practices. so dell is seeing public sector clients of this nature actually adopting the latest technology because of the productivity gains they'll get. >> so you're cheering for the mets? bottom line for once yes, it is a ka rowsive play at this point? >> i would stay with dell in this environment. you would. but not at the dispense expense? you would buy hp first. >> i think both of them.
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the market is choppy around what happens with the discount rate. but given what's happened in the past or around discount rate hikes, typically, the markets continue to rally and we have a very strong product cycle or a number of product cycles around windows 7 and the use of virtualization around a number of sectors. virtualization in terms of storage. all this argues for an upgrade cycle and very strong i.p. spending. >> david, good to talk to you. coming up, were you spriechd by last night's move? our next guest was not. larry called that very move right here on "squawk" he will join us next.
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larry, when do they hike the discount rate? >> oh, know, any time. i wouldn't be surprised if it was today. 10:00 this morning. >> that was on this show a couple days ago. former federal reserve board governor making a bold and accurate prediction on "squawk box" with steve liesman. he joins us from washington. steve is tracking the fed from boston. larry, great call. you've got to feel good about that, right? >> yes. we called it -- we had called that about two weeks earlier, before the chairman's testimony. it was pretty obvious to us that it was going to occur soon. and it had nothing to do with
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the timing of the ultimate exit from the extraordinarily low policy accommodations. >> walk us through what happens in the weeks to come. obviously, we hear that message from you. we heard it from the fed last night. will the market read it that way? and do they deserve to have some suspicions that maybe things are moving faster than they thought? >> well, i think only if they believe the chairman lied. so we have a couple of possibilities. they didn't read the testimony. they didn't understand the testimony. or they don't understand the meaning of soon. >> okay. that leaves some -- >> very direct. >> steve, you want to jump in? >> you know, i heard you guys talking in the last half hour. i don't want to mince words, but the idea that this is somehow related to the inflation numbers, i think deserves the word preposterous. >> really? you don't deny they get the number? >> they get the number, what? two weeks ago when larry was making the call they were going
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to do this? a month ago when everybody i talked to and all my reportinged the first thing the fed would do would restore the discount window -- or discount rate spread over the fed funds? you know, it's one of those things where if you didn't know this was going to happen, you weren't paying attention. my lead of the bernanke speech was discount rate to be hiked. my lead on the minutes was -- >> it sounds like -- >> let me finish, melissa, just be clear, my sources are telling me in the wake of this that the concept there's another bit to come is not necessarily true. they may stop here. so the idea that somehow they're just beginning this process of going back to 100 over on the fed funds is not true. it's out there in a lot of stuff. they may stop here. >> rich bernstein -- >> i want to ask both of you. do you think fed funds december 31, 2010 will be higher than they are today? >> well, let me answer that question and put it back to you. the typical forecast, is that
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the unemployment rate will be 9.5% or higher. also, that the inflation rate over the last year will be 1 to 1.25%. i have to ask you if you think at that point the fed would begin to tighten? you tell me. >> first of all, i think the bond market will -- i don't think the bond market looks at core. i hate to argue with on you this one, but if we find the inflation rate starts breaking 3, 3.5, we break 4, i think the fed will start acting. they have to react regardless of what core does at that point. my point being, if i'm an investor and i think fed funds will be higher, whether it's tomorrow, next week, next month, the end of the year, shouldn't i be positioning portfolios for that? doesn't the fed always -- >> richard, why wouldn't you -- >> first of all, the fed does
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look at core. the only way headline inflation has an impact on the timing of monetary policy is if it seems to long term inflation expectations. >> well, that was my point, that the markets react to headline. >> you know, historically our imper kel research says she respond more to core than headline. if they respond to headline, that's a possibility. now, you know, so it really doesn't have anything to do with today's number. they does it at 4:30, they got the number. the chairman alone got the number. he doesn't share it with anybody else. he got it at 4. you're not going to tell me he made the decision to do it yesterday a half hour after he got the number. and the number doesn't matter. it doesn't matter what that number was. it was -- >> let me make one -- >> wait, let me make one other point. the markets can position themselves and they deserve to lose. if they don't understand --
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>> how to read and write? >> if they don't understand what drives monetary policy they deserve to get wrong and lose money. >> that's a fair point, larry. although the action of the treasury market indicated there were a lot of participate abts in fixed income caught blindsided by the move. i want to get your next call. what is the next move the fed is going to make and when? >> the next move will be to actively withdraw reserves. that will come late. that will come a meeting or two before the fed actually hikes the funds rate. i should say the first move before that is a change of the language. we don't think that will come for a while. we don't think the fed will actually raise the funds rate until 2011. >> got it. larry, steve, thank you for your time and analysis. going to take a quick break here. we're just getting started on the fed this morning. what is next for the central bank? and for the market for that matter. we'll go spanning the world for the answers when "squawk box"
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bernanke and company in a surprise move -- raising discount rate for banks who noticed emergency loans. dollar hitting eight-month highs. markets reacting. tiger, the big announcement. will he return to the tour and what will endorsers do after his comments? and the president hits the strip, arriving in las vegas to push his economic recovery bill, but officials there not taking the president's visit or his comments lightly. will president obama hold them or fold them, as "squawk box" begins right now.
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good morning and welcome to "squawk box" here on cnbc on this friday morning. i'm melissa lee along with carl quintanilla. becky and joe are out. we are back with richard bernstein. a lot of great guests to come. >> our top story, the fed surprising markets just after the bell by hiking the rate the banks pay for emergency loans by a quarter point to 0.34%. the dollar hitting the eight-month high against a basket of currencies in the wake of the first fed hike of any kind in nearly four years, june '06 was the last one. it's a move with a lot of implications for exporters, multinationals and tech companies. it's the first step some say to unwinding the program the fed used to fight the crisis. steve liesman joins us with more on what should be his day off, but it is no longer that. steve, interesting, your
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comments before the top of the hour with larry meyer. and you think the markets should -- i won't say will -- but should listen to what the fed said last night and take note. this does not mean that credit constraints are going to get tighter on households. >> first of all, there's nothing else i would rather be doing on my day off than talking about the federal reserve, looking at charts and those sorts of things. i think the question the market wakes up with this morning is exactly as you put it. is this a sign of things to come and things to come sooner than markets thought or is this a one-off deal? i have some information that, perhaps, this is a one-off deal, at least for now. the fed, of course, waste nothing time in making three important changes here. the first one is it cut the discount window loans to -- or increased the rate to 75 basis points from 50 basis points over. increasing the spread there. it raised the minimum bid for taf to 50 basis points from 25.
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and reduced the term, in other words, you can't get the money for quite as long as you had before. it was 28 days. now you can only do it overnight. the fed characterizing these as a normalization. not a change in monetary policy. here's the quote from the fed -- >> that statement goes on to say the outlook is the same as it was in january. what did the fed say about the outlook in january? that they intended to remain exceptionally low for an extended period. here's the key -- how much money is affected here. what you'll see here is that it spiked up to half a trillion dollars back in the worst parts of the crisis. now, it's only at $30 billion, taf plus discount window barring, the two combined only affects $30 billion. really what the fed wants the banks to do, hey f you're having
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problem getting funding, going to the market first and make sure the fed is only a last resort. let's go through the tale of the tape here. back in august of '07 it was the fed's first response to the crisis to cut the discount window spread over fed funds from 100 to 50. then said we're going to auction off these funds rather than you have get it from us. then in march of '08 it cut it from 25 to 50. notice that last cut. that last cut is important there because at 50, the fed did not have another takers. so, my information talking to sources overnight, is that the fed is going to let it be here for a while and see how this 50 basis points oved funds works. so the idea of going back to 100, which i've read many analysts say this is immeaoment that's not my information. my information is the fed will leave it at 50 over. the other information i got is this should not change the market's expectations one wit
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about how soon or how long it's going to be before the federal reserve raises rates. this is a technical change. and the fed does not intend to be raising rates any sooner now because it did this than before it did this. >> i keep hearing you say you use the word "while," for a while. steve, how long is that? >> it depends on the outlook. yesterday's jobless claims has an important impact on that outlook. they were up again. they haven't improved, i think, as much as the fed would have expected now. so, to me that kind of pushes it out a little further. you know, i don't know. you had rich on set talking about december of this year when the fed may hike rates. i don't know. is his outlook any different because of this? did he move it forward? >> that's the key. >> steve, what i said is i'm just trying to ask the simple rhetorical question, do you think fed funds will be higher in december 31, 2010 than it is today? my point is, if you answer that question yes, it doesn't make any difference from the market's
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point of view as to what the progression is. the market will begin to discount those higher short-term interest rates. i know the fed wants to get the message out that they're not tightening householding. i understand the politics around that. but from a market perspective as an investor, i don't care. they're going to start moving that way. it's a mixed message because, obviously, they feel confident, the economy is strong enough to withhold. we don't have to have the emergency measures anymore. i think that's very, very important. the point being, they feel confident. what's next? if their forecast is correct, they're leading them to this confidence, that means short-term interest rates will go up. >> richard, we've known for a very long time the direction of rates being at zero essentially has been up. and the timing here and the magnitude of it matters a whole lot. and by that i mean, if the fed were to go to 50 or a range of 25 to 50 on the fed funds or raise the interest rate on reserves, i mean, how far are we away from a point in time when the fed raising rates is going
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to have an impact on households and corporations in a way that meaningfully matters? i would say that is at least a year or month away. and by that i mean, the fed could raise rates, it would remain low and the cost of funds for the majority of corporations is going to remain extremely low for an extended period of time. you can position your portfolio for you and run into the woods because you think the storm is coming. but that storm is a long way away. >> all right -- >> let me say one thing. steve, i'm reasonably bullish so i've been expecting the fed to begin the tightening cycle. i think it's quite the opposite. i think we're at a point now where people have to start admitting that the cycle is strong enough for interest rates to go up and how do you position portfolios accordingly. >> all right, steve, i think we're going to come back to you, obviously, throughout the day. >> yes. >> let's get market reaction to the big move. we turn to the top strategist on the street.
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ed kon, our guest is rich bernstein is here. dave bianca, i want to start off with you. there is a difference between perception and reality. in terms of the market it's all about perception. if we are to believe there is a normization to come, whenever that may be, is now the time, in your view to start shifting your portfolio accordingly? >> good morning. good to see everybody. listen, we do believe that the economy's recovered and part of that recovery will be eventually higher fed funds rates but we don't think the fed will hike rates until early 2011. we're encouraged with what we're seeing out of the u.s. economy, but particularly the global economy. and while i think that higher interest rates is a risk, we think moderately higher rates will be good for the market provided interest rates don't surge. i'm encouraging investors to buy the market. i think we'll get to the 1200 on the s&p quite soon and we're forecasting 1275 by the end of
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2010. >> at the end, the dollar has risen, 90% of tech companies' revenues comes from overseas. won't that be a problem for the s&p to reach that mark that you say? >> we believe the dollar will appreciate over 2010 versus the euro. that will cause earning headwind like technology, but sectors will grow anyhow. i'm looking at how the dollar affects commodity prices. we see oil holding in at quite high levels with the dollar strengthening and continuing to further strengthen. i think with a stronger dollar and still high oil prices, you'll get pe expansion at the energy sector. investors will pay for the higher oil prices. so the dollar will be stronger. that will keep interest rates benign and earnings will raise in 2010 and 2011. >> ed, what is your take on this and do you expect that the
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dollar will, in fact, rise because the corollary is the fed is making this move that there's an expectation that the economy is on somewhat better footing. >> the fed did exactly what they were going to say. it's ironic, if you're somewhat bullish will the economy and the market, you expect the fed to start to take action. and so this early warning shot is really -- is just doing what they said. it's not that important to us. so we still have been slightly overweight risky assets and i see no reason to change that position. >> steve, are you still there? >> yeah, i am. >> how much are you recalling the kevin worsch op-ed, it's going to last september, they did say the way this goes up and cannot be asymmetric from the way it went down. >> yeah, that's true, carl. but, again, i want to kind of divorce that from what the fed did. the fed needs to have a different conversation with markets about taking back, you know, normalization of the fed funds rate and interest rate on
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reserves. i think the chairman started that in the testimony. we all focused on the immiment stuff was the discount rate rising and that sort of stuff. but ultimately how the fed gets back to a more normal fed fund rate is a different conversation and, quite frankly, a different set of actions. you saw it in the minute that came out on tuesday, that there is several participants want to sell assets near term. there is an entire sort of matrix of decisions the fed has to make about selling assets, about raising rates and how to do all that, that has to happen. again, i don't think that's this. >> steve, i want to turn barry now and continue with the market reaction specifically. and certainly, you know, a lot of people involved in this discussion this morning have said that everybody should have known. but if you take a look at what happened in the fixed income market prior to the move, people didn't know there. i mean, the action in the tro-year treasury did not indicate this was coming down the pike, certainly not a couple
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of hours after the market closed. you say that you're anticipating a correction in the treasury market. how is this going to play out? there are a lot of retail investors who have poured money into this market, $377 billion in inflows into bond funds last year. tell us what we should expect. >> well, first of all, i think that the two-year part of the curve is the most expensive asset on, you know, my entire screen. it just doesn't belong at 88 basis points in an environment where even the hawks and the doves would all agree that the excess $1.1 trillion in reserves in the banking system are a risk. i mean, the doves really are indifferent with respect to those. and the hawks would like them out of the system. and so, in that environment, 88 basis points is not the right level. i think st. louis fed president bu bullard had it right three months ago when he said there is too much focus on rates. rate hikes did little.
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finally the inner bank lending systems, emergency programs, is what prevented a fire sale of securitized assets. qe, what drove the rally across capital markets, including the equity markets. it's the slowing of qe purchases that set the core of the correction we've had thus year. and that will be the theme throughout the first half of the year. >> time going to say, barry, your thesis has been for a while now that the first half would be choppy because we would have to get our arms around this new dynamic, and that the second half would look better. that's intact this morning for you, right? >> absolutely. i think everything that's happened so far this year has been indicative of that. the chinese monetary policy tightening, plus the most rich cyclical sectors to sell off. then we had a little bad growth numbers out of -- from december and january. that caused a bit of a selloff in the weaker, you know, sovereign type debts, weaker leveraged assets. the debt has gotten strong again. the fed is taking the next steps. the minutes a month and a half
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ago we were talking about whether we should extend qe. now everyone's in agreement they would like to wind down their mortgage portfolio over time. steve's right to think about how that's going to work because that will clearly have an impact on asset markets, including the equity market. >> carl, can i just say i'm reminded of one other speech. back some time, '03, '04, greenspan talking in san diego talked about what the fed calls the terminal rate problem. and the terminal rate problem is this discussion right here. how does the fed make a nudge in interest rates, in this case of the spread of the discount rate, affecting only actually $30 billion of funds, without the market immediately pricing in the terminal rate problem? the hyperactivity of markets, and guys like richard bernstein s a real problem for the fed making monetary policy. >> yeah, he's very sorry, too, i can see it all over his face. >> i'll write a note to mr. bernanke apologizing. >> ed, going forward, it's going to get interesting at humphrey
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hawkins. has any part of your strategy changed over the past 12, 14 hours? >> no. if you look at the long term, there's always a knee-jerk reaction, a negative reaction. >> that's what we're in. >> you see the same thing with china, same thing here. always happens. if you look over longer periods of time, what matters is does monetary policy exceed in keeping inflation and inflation expectations contained while promoting decent growth. coming out of a deep recession, we think we'll not get the normally big snap back, because we will see some decent growth. we think inflation is going to stay contained. so this action in itself is not going to change our investment strategy. >> any part of you speaking of labor make you think -- if i'm a small business owner and i see this news today, the likelihood of a bank lending to me, to hire more workers, might have gone down. would you agree with that? >> you're going to hire more
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people if people line up to buy your products and services. if that happens, the economy will recover, regardless of what happens in washington and the fed. right now the problem is lack of demand. there's a lack of credit as well. if we start to see demand pick up, you'll see credit flow again and you'll start to see hiring. >> ed, thank you very much. >> one more? >> yes. i want to be more precise on that, which is that the cost of funds for, i think, 99% of banks is unchanged by this move. >> very good point, steve. >> the likelihood doesn't change. only for those banks that were out there, really either playing an arbitrage game or unable to get funds elsewhere. 99%, the cost of their funds, it hasn't changed. >> $14 billion at the discount window? >> 30 total. >> plus taf. as of february 17th is 14. so, very small. thank you, guys, everybody, ed, david, barry, steve, rich we'll hear from you throughout the show. any comments or questions
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about anything you see or discussions here on "squawk box" this morning, e-mail us here at when we come back, tiger's public apology, the golfer ready to break his silence. we are live in florida where the widely anticipated news conference will take place. we're just hours away now. and then, much has been made about president obama's remarks that bailed out companies should not schedule junk ets in las vegas. visiting sin city and talking about the recovery act. why what happens in washington doesn't necessarily stay in washington. that's next. aflaaac! our little friend here has spent ten years trying to get your attention. but, some of you still don't know quack about... aflac! so, give me ten seconds to fill you in. if you get sick or hurt, aflac pays you cash, fast to help pay for things major medical insurance doesn't. like car payments, mortgage and more. and now let's see if this duck - is chicken. if all you know about us is...
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tiger woods set to break his silence this morning, nearly three months after his infamous car crash that spiralled into a sex scandal. brian shackman has made the trip to pga headquarters where tiger will be speaking. >> reporter: he'll be speaking at 11:00 a.m. eastern time. of course, one camera and no questions. a lot of our audience, though, has one really big question, to be quite honest, is when will we see him back on the golf course? we now know it won't be until after that rehabilitation process has been completeded. let's face it, he needs to get on the course to keep the tiger-comomy, as i'm calling it, on course. $64 million in endorsements for
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2009, according to forbes. he's been dropped by at&t, ak censure. according to a study, sponsors have lost $5 billion. nbc and cbs broadcasts were up 93% when tiger played. there's a lot of questions and debate over strategy here. why is he talking now? why is he talking at all? it's going to be difficult to convey sincerity with no question and answer. it's cold here in florida. people are wondering if tiger will be cold. if it's about rehab and the timing issue, maybe that will quell some criticism. a lot of people are looking at his team and why they're doing things the way they're doing it. >> i wonder, i mean, do you think -- not that it's your job so to have at opinion on this stuff, but if you were angry at
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accenture for letting you go, there's no other reason than to have the conference today. >> reporter: why couldn't he do it on monday? if if he has to go back to rehab on monday? maybe. the truth is, it's hard not to come to that conclusion even though it seems petty and frankly a little adolescent. >> ernie els and others certainly feeling that way. >> reporter: pretty mad. >> we'll see you later on this morning. thank you brian shackman from florida. when we come back, tensions between the president and officials in nevada escalating over the president's remarks about sin city. you know what they were. we'll hear from both sides about that. as we go to break, check out oil as the fed rate hike. we've lost less than $1. talk about that and a lot more.
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at least one washington political stalemate may have resolution in sight as chris dodd gets set to unveil a revised version of financial regulation reform. joining us this morning to talk about that, former vermont governor howard dean, former dnc chairman and dan bartlett. guys, good to see you both this morning. you're catching us on a fascinating morning where we are
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responding to what the fed did last night. talking about to what degree does that mean things are going to get tougher for consumers or is the economy actually standing on some legs of its own? dan, regardless, that message is evading the white house. they have not been able to convince the people that's what's going on. >> they haven't. it's been a real challenge for this white house as it tries to transition from campaigning, which they were so good at in the '08 campaign and actually governing. what you see, carl, they have failed to be consistent or coherent when it comes to their economic agenda or program. whether it's one day lambassing the people in vegas and then he's in vegas saying, please come to vegas. one day he's the populous president and now saying we're taking the necessary steps to improve the economy. there's a lot of political advisers in the white house, is this going to be the repeat of what happened to president bush
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41 when rates started to rise and the impact that might have in the political environment next fall. >> governor, your take on where the fed stands today and where the president stands as he goes to vegas? >> i think dan is right. they had a lot of trouble with messaging in the white house. the underlying approach they've taken on the white house is exactly right. i happen to be a fan of bernanke. the white house has stuck by him. that's the right thing to do. you're seeing a stronger economy than expected. the reason the white house is having trouble is not entirely of their own making. the fact is that unemployment is the lagging indicator. it lags when you go into recession, lags when you come out of a rescission. the underlying economy is getting better. the question is, will we see unemployment drop significantly before the election because that's what has to happen for democrats to do better. >> would it be a smart thing for the president to come out and make a statement that reaffirms his commitment to ben bernanke and the fed? >> i would. i mean, you can't -- you can't worry about the fact that he got 30 votes against him.
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there's a lot of upset and anger, both in the political establishment and in -- among the american people about this very difficult recession. they're looking for anybody to blame. resoluteness, even in the face of adversity and public opinion is the right thing to do here. people always respect strength, even if they don't agree with you. >> as an investor i would like to ask you a question. there's no doubt the cyclical side of the economy is improving, but it seems like washington does not want to address the structural secular issues in the economy. president bush 43 won't address it, president obama doesn't appear to be addressing it. there are structural issues as we saw as big in 1980 when we had inflation dominating the economy. now they only have the financial sector dominating the economy in a dysfunctional way. nobody wants to address that. the bill keeps getting watered down, watered down. is anybody in washington going to deal with these secular issues? >> i hope so.
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i think it's an enormous problem. they have two huge issues. the deficit, which they can't deal with right now otherwise they will screw up the recovery, and the financial regulation. i have to say, i am dismayed and i can't wait to see what chris dodd, who i like a lot, is going to come up with. but i am dismayed by the lack of the willingness of the democratic congress to take on real regulation. not punitive regulation but real substantive regulation. i think your analysis is exactly right. we're not dealing with the financial structure. this will happen again. >> dan? >> what i would say, we tried back in the previous administration to take on a structural issue such as social security reform. what we learned the hard way is that unless there's an imminent crisis, now in the financial crisis that has abated and nobody feels like we're on the cliff, the united states congress is not capable of dealing with these high lan charged issues. when you go into a political cycle where there's a systematic
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partisanship where both sides are jockeying for very few seats, that the paralysis that has happened is because the risk adverse nature of the political parties dealing with these midterm elections. >> you heard senator simpson say we tried to tweak social security. that was impossible. i guess i'm wondering, dan, if you think given what senator bayh said earlier in the week, is the senate -- specifically the senate ungovernable and do we need to have split houses of congress before we can see any kind of compromise? >> i think there has to be a look at long-term compromise or change in the way that the affairs of the united states senate and others are conducted. but make no mistake, one of the real problems here is that this administration and white house erred in its judgment on the things they tried to push. they were pushing a much more aggressive democratic agenda in which nancy pelosi and those in
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the senate, the democrats, were pushing a vast, broad, deep intrusion into our -- into many sectors of the economy. that was something that misaligned this administration with where the public sentiment was. that was a big strategic mistake they're still paying the price for. >> that they've learned from, governor? >> i hate to say this, it won't surprise you i strongly disagree with dan. i think the problem was not that they pushed an aggressive agenda. that was exactly the right thing to do. the problem is, they weren't aggressive enough. agenda, they needed to use reconciliation, get something substantive through the congress quickly and then move on to jobs. health care does have a huge affect on jobs. we'll be revisiting health care of year until we get this thing right. it's too big a problem now. it's got to be fixed. i think that the dysfunctionalty is in the senate, i think the senate rules are unworkable. they've never been used by this. we've never seen so many filibusters on minor nominations. it's going to have to change. if it doesn't change, no
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president, republican or democrat, is going to be able to govern this country again. >> gentlemen, we've got a lot to get to. you guys offer good points. dan, great to see you, governor as well. we'll talk to you later. dan bart let and howard dean. >> the overhang to your point, rich, is tremendous when it comes to companies. i mean, the uncertainty of health care as well as the uncertainty of financial reform. it's almost better, i would think, for investors to know the outcome, yes or no. >> yes. we're at a point -- my question was really, we're at a point where i think we need huge secular structural change in the economy. that's going to be the story beyond 2010, 2011, 2012. a long-term investors, you have to watch carefully. >> other time, the mean story that continues to dog toyota, president akio toyoda will testify before a congressional panel next tuesday. he promises to give a sincere explanation. question now is, why the change of heart? our phil lebeau has more.
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he certainly had to be prodded along to come to this point, phil. >> i'm not sure how much he was prodded along. let's be clear. there was a little lost in translation with the press conference the other day. initially it was reported that he said, no, i'm not going to washington to testify at congressional hearings. what was logs in his message is the fact he felt his u.s. executives were better set to answer specific questions. in fact, he later clarified during that press conference. listen, if i'm invited, i'll likely to go to washington. he has now officially accepted an invitation to testify at a congressional hearing, at a press conference yesterday where he said he would be going to washington next week. what's the response from the folks running the house oversight committee? they officially put out a statement saying we're pleased mr. toy owed that accepted the invitation to testify before the committee. we believe his testimony will be helpful in understandsing the actions toyota is taking to ensure the safety of american drivers. again, that hearing is scheduled for next wednesday. all of this is happening while there continue to be questions
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from toyota drivers about the value of their cars. how much has it been impacted? well, it actually is stabilizing. automotive lease guide ran the latest numbers for us. residual value down about $300, or 1%. retail used prices for toyota, down 3%. here's the good news for toyota, wholesale auction prices, they are actually firming up. automotive lease guide also says new toit oe that models at this point, they're expected to be worth 47% of their value in three years. that's a little bit lower than before but not a terrible falloff. the new toyota values could fall, however f these recall issues drag on or if the company really jacks up incentives. that's going to dilute the value of toyotas. it is something weighs on the mind of potential car buyers. >> it will be a concern, you know, and i'll have to justify it in my mind at the time i'm going to purchase. >> it makes me a little nervous because i wanted to get another highlander. so, i'm a little nervous about that.
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>> reporter: what's your toyota worth? it depend on the model, the year, the condition of the vehicle. here are some numbers from kelly blue book. a rough idea of how much the value in terms of retail use have fallen. camry, corolla, down anywhere between 2.5 and 4%, carl. a lot of people say, my toyota won't be worth anything anymore! settle down. relax. it's going to take a hit but they're not falling off. >> numbers seem awfully modest. >> how is that calculated? there are a lot of auto retailers out there with used inventory on their lot they have got to sell. a part of that will be unsellable. isn't it a buy naer thing -- >> reporter: i don't buy it's unsellable. i'm not trying to defend the company. i'm not trying to defend the company here but if you go and talk with dealers, they will tell you, prices are a little under pressure but there's still people coming in. they're still buying. now, i don't mean to -- a lot of people sit there and say, well, you're apologizing for toyota.
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that's just the facts. go out and talk with dealers. it's tougher to sell a toyota but not impossible. >> i wouldn't want to be a toyota dealer right now be, but if that's what they're saying -- >> reporter: it's not just toyota. talk to ordealers with used toyotas on their lots. >> it's going to get interesting next week. phil lebeau in chicago. next on "squawk," your tools in the trade. after this fed move, how gold, currencies are reacting. buckle up, it's going to be an interesting day and potentially the beginning of a new chapter.
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market around the world reacting to a rise in the fed's discount rate, first upward move in rates since june of 2006. invers were surprised by the news after the bell. right now they're focusing on possible ways to benefit, health care, as well as dividend paying stock. joining us now, boris schlossberg and peter sorintino
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at huntington asset advisers. boris, i'll start with you. what you say about the dollar will give us the ancillary plays after that. where do you see the dollar going and where you see it by the end of the year versus where you saw it 12 hours ago. >> well, you know, i wrote today if currencies were olympics, asia-pacific still gets the gold. north america carries the silver. europe, bronze. uk is collecting dips. that's how the relative growth story sets up for the time being. i was on "squawk" a week ago. i said the only risk trade was the aussie, which is still up relative to the dollar a week ago. but as far as the dollar itself goes, to me the economic recovery story is strong but we do have some potholes in the road. the key thing i'm very concerned about is the employment picture. i wonder what rich is watching, but to me the single most important thing i'm watching every week is the weekly jobless
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claims. that was key. yesterday we had a big tick back up on the number. we need to see that below 400,000 and positive nfps three months in a row before the fed considers tightening rates. that's the story going forward. >> in general, at least for investors out there, higher dollar is the immediate impact? >> yes. clearly higher dollar. we broke 35 which was a key level. we may have short covering and countertrend flows but for the time being the trend is to the dollar. it's a strong possibility we could test 133 in the next week, especially if the european data continues to slow down and u.s. data continues to improve. the biggest thing is disparity between u.s. and european. >> peter, a lot of people say since oil is holding in there, we can shrug this off. at the same time i was hearing chatter there was geopolitical concerns and that may be, in fact, what is sort of influencing the oil market. >> well, there are two big
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things influencing oil. this is going to push us down immediately, but you cannot sell oil in march. it's insanity. if you had bought gasoline, june gasoline in the beginning of march, in 24 out of the last 25 years, you would have made profits by may. ten cents a year. over the last four years, 35 cents a year. >> wow. >> but we are very worried about what's going on with iran. israel can't allow this. and we know that there's kind of this closing window before the soviet antiaircraft missiles arrive. if that happens, then they're not going to be able to do anything. so we are watching that very, very carefully. >> peter, if we want to get the so-called tail out of the commodities market should we be looking at metals as opposed to oil? we're reporting oil is hanging in there but shouldn't we be xmenning what's going on with material stocks, such as copper? >> the metals, unfortunately,
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have been vastly influenced by the liquidity injections. we saw the huge run in copper last year, once the imf, part of their gold mondayization took place. we had the huge run in gold. a lot of that was the anti-dollar liquidity trade. as the dollar begins to rally, that door begins to close. we saw a lot of people anticipate that. gold has pulled back. copper pulled back. there was a lot of disconnect on the lme in the last couple of weeks, as investors tried to buy protection, feeling there was a big selloff coming. so, we're getting some -- i think we're getting some displacements right now as liquidity, as the speculative trade comes off. longer term, there's definitely a case to be made on the commodity side. right now, you can look at some counter trends. silver lagged behind gold. silver may be a better play here, a catch-up trade relative to gold. with the dollar continuing to rally, gold probably marks time in here. until we get to see what happens on the monetary front and the fiscal front. >> boris, in terms of the dollar and what happened last night,
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you used the sports analogy, i mean, is the dollar now a hockey player who's -- >> are you proud of me? i thought about it -- >> thank you. you obviously knows what's on cnbc. >> i try hard. >> is the dollar now a hockey player in the midst of a power play given what's going on in japan and the euro zone? >> oh, yeah, for sure. these two things -- against japan, it's fascinating. key thing with japan and dollar/yen is the liner. when you break 92.30, key levels currency traders are watching, it could go higher on dollar/yen in that sense. >> do you want to make a call on the greenback, month, two months, something like that? >> oh, god, i'm going to hedge it as usual, but i'm going to say assuming we continue to see improvement in u.s. economic performance, definitely strength to the dollar. dollar/yen could go to 95 under that condition. euro/dollar goes to 133.
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i think the key thing i'm watching, this is what rich is also watching, is the weekly jobless claims. we need to see improvement in employment. >> your call even with the strong dollar, hard to count oil out completely? >> you really can't because of the seasonal. it's just so very strong, 20 out of 30 years heating oil. 20 out of 25 in gasoline. strongest commodity trend or seasonal trend as there is out there. >> got to leave it there, guys. thanks so. want to get more expert opinion on the fed rate hike last night. joining us is peter greenlaw and steve liesman, who i don't think has gotten out of the chair. good morning to you, david. >> good morning. >> you had a very quick miss out of the wake of the announcement. walk us through your take. >> you talked about it a lot this morning. i think that this was not a signal as far as timing goes,
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but i think it was a signal as far as the process goes. the process is under way. the fed is removing the liquidity support facilities that have been in place and we'll eventually get to the point where they do more. they'll drain excess reserves, drain the fund rate. our thinking thinks it will happen sooner than others you've had on this morning but there's plenty of debate on that front. yesterday's action was not a signal as far as timing goes, it was a signal as far as the process goes. >> it is interesting, steve, to listen to some of the things getting whispered in your ear this morning. >> yeah, i mean, the key question is whether or not the fed goes back to the 100 basis point spread over the discount rate over the fed fund. what i'm hearing, carl, that is not a foregone conclusion. i personally thought that's where the fed wanted to go. that was where it was for, what, four or five years. but if you think about what happened, carl o the way down, when the fed cut from 100 back
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down to 50, there weren't really many takers at 50. it had to get down to 25 and then auction off those reserves -- those loans through an auction process. that's when they finally had takers for it. so it may be that the fed gets to 50 and settles there. at least for a time to see, you know what, am i accomplishing my goal? what's the goal? the goal is to make sure that the fed is a lender of last and not first resort. that's what this is all about. >> steve, i think that's exactly right. don't you think we're clearly moving towards a little different framework for monetary policy going guard where you'll have something more like a quarter system that prevails in other countries where the discount rate is the ceiling, interest on reserve rates is in the middle and fed funds rate is on the bottom and you have kind of the fed moving around the interest on reserves rate and the other two rates responding more or less automatically? >> yeah. i mean, david, we've reported this quite a bit, beginning all the way in january, that the new benchmark for the fed is going to be the interest rate on reserves because it can't
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control the fed fund market, as you know, because there's all this extra money sloshing around the system that can't earn interest on reserves. so the fed funds is no longer -- at least at the time -- really the right benchmark to use. the more interesting thing to me, david, is whether or not the fed goes to a point, it talked about this in the minutes, bernanke has talked about this, the idea of targeting an excess reserve balance. 1.1, $1.2 trillion of excess reserves. if you tell me what the most important factor that's going to be, that's going to influence lending and policy out there, it's that number and what they're going to do with that. >> david, let me ask you something about the reaction last night and this morning. i know it's -- we're off some of the extreme levels we saw after the announcement, but the timing of the action created a ridiculous reaction, we've been abnormal for so long that even a touch more normal is seen as obtuse. it's like coming out of a dark room and looking at the sun for
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a second. >> the timing was a bit of a surprise. you can see how sensitive the fed is impacting the market with some signals that might be misconstrued by the market so they waited until after stocks closed. interestingly you had a fairly modest curve flattening in the u.s. right after the announcement. kind of a knee-jerk response, four or five basis flattening. had you more than that overnight. certainly an -- and more movement in the dollar overnight as well. so indication that maybe foreign investors are reading a little more into this and are a little potentially more confused than domestic investors about the significance of the action. >> if we are to believe the shorter end of the curve, the two-years will, in fact, revert to normal where they were prior to this fed announcement yesterday because we're overreacting at this point s there an opportunity there? >> well, it was a fairly modest move, domestically. i think that we will be back in the curve steepening mode fairly soon. i think the fed chairman next week, we have important
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congressional testimony from chairman bernanke coming on wednesday of next week. i think he will sort of reassert the dubbish message the fed is not going to move any time soon. i think that's going to lead to some curve steepening. our view is that the market is going to push the fed into action. what the fed says is important, but at some point it's going to be the market driving the ship. inflation expectations are going to go up. yield curves are going to steepen more. and that's going to be a signal for the fed to move. you're going to need a stronger economic data to do that. i think we'll get that over the course of coming months. at some point the second half of the year the market will be pushing the fed further. >> david, appreciate that good insight. steve, we'll talk to you soon. thanks. coming up next, tensions between the president and las vegas officials growing. what his visit means for sin city and its road to recovery.
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well, the president set for a visit to las vegas, the city whose ire he drew by criticizing corporate trips there. our jane wells joins us with more on how this trip may go and how he may be received, jane. >> reporter: well, you know, carl, i asked a cab driver, what do you think of the president? it wasn't pretty. but i'm here at city center where parent mirage reported a narrow loss yesterday, room rates, revenue per room way down. they say they're holding up to
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other rivals. but the president arrives to talk about jobs and to raise about $1 million last night for democrats at the home of george maloof. maloof told everyone how much he loves sin city. this is coming out of the economic hangover and rejoin the wolfpack of growth. the number of visitors for all of 2009 dropped 3%. that number grew in december for the fourth straight month. you can see, by any measure there, room rates, conventional attendance, gaming revenues, bad for the year. better for december. my flight was full yesterday. i haven't seen that in a long time. as you look at this north las vegas neighborhood with the highest foreclosure rate in the country, this is a state with 13% unemployment. the president is announcing $1.5 billion in aid today for hard hit markets so people who have lost their jobs can maybe stay in their home. this is a town with a tough relationship with the president. february last year and this year he invoked vegas as a place of waste. the mayor last year was offended. this year he's angry. listen to both, then and now.
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>> you can't get corporate jets. you can't go take a trip to las vegas or go down to the super bowl on the taxpayers' time. >> when times are tough, you tighten your belts. you don't go buying a boat with you can barely pay your mortgage. you don't blow a bunch of cash on vegas when you're trying to save for college. >> people heard, you don't go to the super bowl and you don't go to las vegas. and that offended me. >> this president is a real slow learner. he has a real psychological hangup about the entertainment capital of the world. >> reporter: all right. not everybody has hard feelings. many are welcoming him, though they are at the palazzo offering a drink called the obama slammer, quote, because he keeps slamming us. back to you. >> jane wells, thank you very much. coming up, our players are ready to take a swing at the fed. two former fed governors and the bond king bill gross ready for
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the fed challenge. a lineup you'll only see here on cnbc. tiger woods about to make his first appearance since that thanksgiving crash sparked an epic sex scandal.
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the fed makes a move. >> check. >> but does it mean the economy is out of crisis mode and is a rate hike right around the corner? >> we don't think the fed will actually raise the fund rate until into 2011. >> we put those questions to the "squawk" lineup. mark zandi of and mark olsen and randy crosser in and bill gross. >> something completely different. tiger's tale -- we're just hours away from the most highly anticipated press conference in sports history. we tee up the spectacle with neil tills oon, former presiden of cbs sports. "squawk box" begins right for you.
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pretty interesting friday on tap, thanks to the fed. welcome back to "squawk" here on cnbc, first in business worldwide. i'm carl quintanilla along with melissa lee. joe and becky are off. both back on monday. our guest host today helping us work through this announcement we got last night from the fed, rich bernstein, former merrill lynch chief investment strath strategist and cnbc contributor. just when you thought he was out, they pull him back in. steve liesman has been joining us from his vacation to cover the fed in boston this morning. first, though, before we get to our big sk discussion about the fed, the economy and markets, here's what futures are doing. we obviously saw volatility last night in the wake of the fed announcement but still got cpi on the way. that's going to tell us at least something about how much room the fed does have to wait, which has been the ongoing dynamic coming out of the bank about how much this move does not telegraph any other sudden moves in the coming weeks or months. first i want to get to steve liesman with breaking news. >> carl, thanks very much. bill dudley, the president of the new york federal reserve
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bank in puerto rico this morning, makes no comment on the fed's move to raise the discount rate. let me tell you what he is saying. he says the gdp downturn was less than the typical banking crisis, justified going through and explaining fed actions and saying they were successful. he says the economic outlook is improving, recovery has begun and importantly here, capital markets are generally open for business. so, that's kind of what's behind what the fed did, was that the capital markets have improved to the point where this emergency discount rate price, so to speak, isn't needed. he expects a recovery. the recovery will continue. because the inventory effect will wear off, he thinks it will be slower in the second half of 2009. and he's saying it's far too early to pop the champagne corks on economy because there's lots of problems from unemployment, foreclosures and still some problems in the financial market. i don't know if you want to talk about the fed decision now but those are the headlines from mr. dudley, president of the new
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york reserve bank. >> dudley this morning, bullard last night, are being fanned out to get the message across? >> i don't think dudley. i'm surprised it's not part of his speech. i know there's q&a but my read of this is the decision by the fed was absolutely unanimous. so i don't think there's any question as to whether or not all will support it. if anything, there are those i know on the federal reserve who want to go further but i don't think there are those who did not want to do this. >> steve, thank you for that. giving us a lot of news this morning. i thought the most interesting thing, in addition to what you've told us, has been what larry meyer said. if the markets don't understand what the fed is saying, they deserve to lose their shirts. >> that's a whoth whole lot of people out there, when it comes to fixed income, equity traders, nobody saw it. you take a look at fixed income participants, yesterday during the day, it did not indicate anybody thought this was coming, at least, you know, right after the bell.
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certainly the currency markets. >> no, i think people were -- it's hard to say people weren't surprised by this, of course they were. but i think it will be interesting to see, you know, over the next several days or next several weeks how people begin to position portfolios. whether it is simply a normalization and we're in a weak mode or whether people start positioning portfolios for the traditional fed tightens as the cycle heats up. >> melissa, can i ask what did people think bernanke meant when he said, we need to raise the discount rate a week ago? let me -- what do they think they -- that the fed meant when they said in their minutes that all agree the discount rate needs to rise? >> all right. so, steve, yes, the fed was very clear, but would it have happened eight days later? i think that's what the market got caught off by. >> what's the difference? what's the difference if it happened today or yesterday or eight days later? >> functionally, it doesn't make a difference, steve, but to the market, expectations are
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everything, as you know. as you know. >> right. but what the fed did is try its best, i think, to really mold those expectations and get them in the right place. i guess the idea being caught by surprise means you have to make an adjustment. i think what the ultimate will be here is where they settle out after today. i think there are kids with acne trading overnight. you know, the cooler heads and the grayer hair comes in as the morning progresses and we get a better point. >> that's true, although i think a lot of asian traders overnight would take offense to that characterization. let's see what it says about the fed's -- >> their voices cracking as they make bids. >> impactly. our panel includes economy dot mark zandi, former fed governor mark olsen, stu shutser, steve liesman, rich bernstein is on set. we've been coming back to this point over and over that the markets should have known.
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did you know? >> i think we all knew it was coming. it's only a little bit of a surprise on the timing. but i'll tell you what, the next time the fed chairman says something's going to be coming, the market's going to pay attention a lot sooner. but the key thing here is that we have a recovery on our hands that a lot of people are not really confident in. and that probably includes the fed. so they're not going to move precipitously. they're not going to take a chance of shutting things down. i think it's a buy on dips environment as a result. >> so you're not necessarily buying into the sort of logical extension of the argument that behind the rate there is an expectation for economic growth and therefore the dollar should be stronger this year, therefore multinationals via headwind, et cetera, et cetera, et cetera. i mean, you don't go down that line? >> i do buy into the dollar should be stronger against the euro and against the yen. because those are two areas the ecb and the bank of japan, neither of them is in a position to raise rates at all in any sense.
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and we are getting closer to being in that position. because our economy is doing better. but is it doing enough better than the fed has to start to shut things down? i think the answer is, no. i think that this is going to be a life extending process. you know, back in the old days we used to talk about three steps and a stumble, meaning if the fed raised the discount rate three consecutive times then the stock market would stumble at some point down the road. i think it's the other way now. i think if they couldn't raise the discount rate the way bernanke outlined a week ago, then we would have stumbled because it means we wouldn't have enough growth. >> would governor schweitzer have done the discount rate last night? >> oh, yeah. i think the credit markets are back in business, carl. and i think that it does mean we have to begin gradually to normalize conditions. remember, there's all of $15 billion at the discount window in borrowing. there's something approaching $1
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trillion, plus or minus, in excess reserves in the banking system? this is just nothing at all compared to that. and it's just a drop in the bucket. and it's purely a technical adjustment. >> mark zandi, do you think that the move underpins the expectation for growth? what are you seeing in terms of the economy and whether or not the fed will actually raise rates this year? does it move up your timeline at all? >> no. it's improving, clearly, but i don't think the fed would raise rates until the unemployment rate is definitively moving lower. i don't see that until the end of the year. you know, in a practical sense, this is an election year, so that -- it makes it much more likely they'll have to see the job market in full swing before they raise rates. i was surprised by their move, though. you know, they are ending their credit easing next month, closing down most of the talf program next month. i thought maybe early april so they get pasted these other events, then they raise the discounted rate. so i was a bit surprised they
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decided to move so fast. >> mark, you've been -- fair to say, you've been worried about the labor market, right? >> with good reason, right, carl? >> i understand. i just wonder whether or not this move makes you think maybe that you're not as enthusiastic as you should be or does the confidence that they have in making this move make you want to rethink your own view, your oe view regarding jobs? >> no. my explanation is different. i think that they're trying to separate these extraordinary measures to provide liquidity to the financial system and discount rate fits into that category. and monetary policy, interest rates, credit easing. by raising the discount rate now, they're now pretty much ending all of their extraordinary liquidity provisions. that's done. now they can move to monetary policy. so that -- the other possible explanation is they have a lot of vocal members, particularly fed district bank presidents who want to move more quickly. steve mentioned this. this is a way to address their concerns. there are other motivations as opposed to they're changing
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their forecast for the economy or when they should raise rates. >> speaking of former fed officials, mark olsen is with us as well. you want to walk us through what you think might have been talked about last night? >> there are a number of factors. in items of the timing, in retrospect, the message was pretty clear. there probably was not a flashing neon light but the message was quite clear and i think the timing was intentional and probably planned. >> intentionally what? intentionally disruptive? >> no. intentionally clear, i think, in the sense that you can't -- there's a limit to the extent that you can say we're going to do this until-n two wookz with the discount rate. but for example, in chairman bernanke's speech that he did not give but released on february 10th, the speech that will be given next week, it was laid out there quite clearly. the minutes released on wednesday very clearly indicated and i think they described it as something that would be happening soon.
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i agree with the comment that was made earlier. the next time chairman bernanke says something will happen soon, it will have a different -- the markets will anticipate -- >> the markets will think maybe eight days is not out of the question. >> what's the definition of soon? >> right. >> rich bernstein, i'm curious because we've been talking all morning about this move by the fed sort of in a vacuum in the sense we're not talking about what's going on around the world in items of tightening. china, india, australia, vietnam, to name a few, have all made moves to tighten liquidity. how does that play into this and does that sort of imply that, perhaps, the fed is thinking, we're not the only ones here? we've got to start moving? >> right. we're in the point of the cycle now where you begin to look at central bank tightenings. my frebd ed heiman does a study where he counts up central bank easings around the world. now ed will start counting up the number of tightenings.
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that's not the end of the story. it becomes this tug of war between fundamentals and interest rates. the key thing to watch is does the curve flatten or does the curve continue to steepen. i think that's one of the key investment questions out there right now. and you really don't have to worry about this in terms of is the fed killing the economy or central banks killing the economy? when curves invert that's the signal -- >> you think it flattens instead of steep willingens? >> i think it will be flattening. >> mark olson, you agree? >> i think so. it seems to me that the long-term outlook for interest rates are pretty benign. if you look at the central tendency that went with it, that the fed announced as they looked out -- for interest rates over a long term, i think the expectation is that the interest rates will -- will stay relatively benign through 2012. i think the central tendency had the inflation rate at about 2%
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up to that point. >> stu, if we were to believe the curve would flatten, should one be careful of financials? that was the immediate reaction when the news crossed. we saw wells fargo, goldman, saks go down by 1 apiece. is that a valid concern among investo investors? >> it seems to me what has happened in the market today than there was a number of years ago is that inflationary expectations are muted. took us almost a decade to get past the point where there was an expectation that there would be inflation. so the market tends to react to -- at least if my judgment, the market tends to react to news like this saying that will remove the possibility of inflation, or at least reduce the possibility of inflation. >> melissa, i just want to say, as far as i can tell, the spread that the banks are going to make
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from barring in the fed funds market at whatever it is now, 12 or 14 basis points and going out and lending that long, remains mostly unchanged as a result of today's -- yesterday's actions. so, the idea that the banks still have a license to print money, that's a steep curve is essentially very helpful to them. maybe some comes off a little bit, but still the situation for bank profitability, i think given also the low lack of lending, the idea they're really not out there lending long as much as they could be, remains pretty much intact. >> i think they have -- their license is still intact. they may have lost a point. >> or an expiration associated with that license now. >> there always was. >> right. we just didn't know when it was. now we might think it's sooner rather than later. >> one more point from you, mark zandi. the worry warts we talked to this morning are concerned, as steve suggested, the effect on bank lending, particularly to small business, affecting jobs,
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and then the stronger dollar on pullty nationals. should we be up in arms about that at all? >> no, i'm not concerned about it. i think this is more of a technical move. i think, though, it is a bit perplexing that they would move as quickly as they did. i mean, i'm surprised if they would be surprised at the market's reaction because, you know, this was a little early relative to their language. the meaning of it is insignificant. it's not going to change anything. but the fact that they moved this early is a bit perplexing. >> we're only human. >> mark zandi, the one economist who came on today saying he was surprised as well. thank you. >> you're welcome. >> and thank you all. >> we were surprised. >> we will certainly thank you all, gentlemen, for your thoughts this morning. we'll pick up this conversation with the former fed governor who was in the tremplgs during the financial crisis, randy crosser in randy kroszner will join us and the bond king himself, bill gross, will tell us why he does
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not see a tightening cycle starting right now. >> the main event, we're covering the fed, but not even ben bernanke can upstage tiger woods. the thanksgiving incident, the girls, the aftermath. tiger is now about to step up to the mike. weem talk to former cbs sports president neil tillson how this will play out for the golfer and the media and companies. %%%%
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welcome back. what a morning we have in store for us this morning on the friday with the fed move last night, and also dell shouldn't be overlooked. a stock to watch today. the tech giant had better than expected q4 earnings last night but the company's quarterly gross margins fell short of the street's forecast. that seems to be what's driving some of the selloff. having to chase some components, which is what hp told us in a different form -- >> higher costs. >> we're only three hours away
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from one of the most highly anticipated press conferences in sports history after a very public fall from grace in november, tiger woods will speak for the first time at 11:00 a.m. eastern today. joining us this morning for more on that is neal pilson, former president of cbs sports and president of pilson communications, and darren rovell, who's been covering the olympics in vancouver. neal and darren, thanks for with be us with. let me begin with you, darren, and ask you what you think having gotten to know him somewhat over the years? what's the message going to be today? >> reporter: well, carl, i've gotten to know him but this is -- obviously this whole thing is a change of character. obviously, i think he's going to come out and say more sorries, being apologetic. i'm not sure if he's going to tell us the date he'll come back. we know from, apparently, the pga tour commissioner that tiger is out because of therapy and that he'll return back to therapy. i don't know if we're supposed to expect a date when he's going to come back. i think at least more apologies. but who knows how long this will
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go on for, the actual speech and who knows what he really will say. >> neal, you make the point that he's being advised by some of the most experienced media people on planet earth. and it's your guess this is in some way a method of telegraphing his return to the sport, right? >> well, the timing is always interesting. why these things happen at any given point. one of his agents has said there's something significant about today. and that's why they picked friday. the only thing i can think of is that, i believe, at 5:00 tonight the entries close to join the phoenix tournament next week. but that's the reference to the 5:00 situation. that may be significant in terms of the timing. >> having run cbs sports, do you think he'll be back better than ever? do you think the public wants to see him play enough that rati s ratings, appreciation for his
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game will be higher than before he left? >> well, i can guarantee you the first time he comes back, the first tournament he plays in, the ratings will probably go through the roof. frankly, i think the public is waiting to see tiger. we've had other experiences with other athletes, when they come back and you have a golfer of the stature of tiger woods, i'm sure the ratings will be up. i'm sure there will be a tremendous amount of interest in his early tournaments. >> darren, carl mentioned tiger is in consultation with some of the top media advisers out there. is it your thought that perhaps he's also met and consulted with some of his sponsors when it comes to cloetding or video games, et cetera? >> reporter: well, nike told me they don't know what he's wearing today. that will be an interesting choice. does he come out with a nike swoosh he's so identified with or just a nondescript piece of clothing? you know, i assume he'd be in touch with his sponsors, though they didn't seem to be that much
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in the loop last time. something interesting from the business side, the npd group came out yesterday and said only 5% of people are buying fewer tiger woods endorsed items. obviously, he only lost at&t and accenture. so you'd think, given the money he makes, he is in the loop with his sponsors. though at this point i'm not sure because everything's been so secretive. who knows how much he's in touch with those guys. >> at the same time, darren, the longer it goes in terms of him remaining off the course, in items of him not apologizing, whatever he says today, doesn't that impact whether people will buy? the longer this goes from the time of the start of the scandal, i would imagine more and more people might think, tiger who? >> reporter: remember, kobe bryant wasn't remade in one day. he didn't make the marketing comeback that he did in one day. it took five or six years to be the top guy again for kobe bryant.
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remember, tiger woods -- i mean, this is an nixonian fall, a fall from grace that we've never seen before ever. i think peemg are frustrated with the time, they're from us tated with the method he's delivering it. at the end of the day it will be him get back on the course and him winning to make that comeback, or at least give him -- >> i wonder what nixon might say about your use -- i think he might say, hey, don't associate me with this. >> it wasn't a sex scandal. >> neal, is accenture going to regret having let him go two, three years from now? >> well, i think they made a difficult choice. they basically work with tiger as a person. i think nike works with tiger as an athlete. certainly, as an athlete, tiger, i don't think, probably hasn't lost a step. as a person, as darren said, i think it has to be some reconstruction here.
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and probably accenture made the right call. frankly, i think nike made the right call as well in staying with tiger. i think we have to keep in mind the timing here really isn't phoenix. the big question is whether tiger comes back and plays at the masters. if he's going to do that, he's going to have to get back on the course some time in march. >> so your -- >> reporter: guys, nothing will surprise me at this point. i mean, cbs said he wouldn't be surprised if he skipped a year. i know we want to predict what's going to happen today, but, you know, i wouldn't be surprised with anything that comes out here. >> yeah, i'd love to see -- it's going to be hard because a lot will be on the internet but the numbers for today's press conference are going to blow people's minds. neal, appreciate your time. darren, we'll see you later from vancouver. when we come back, a lot more inflation news, cpi's on the way.
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moments away from another report on inflation, consumer price index will be released after that break. former fed governor randy kroszner weighs if in on the discount rate hike and bill gross will tell us why this is not the start of a tightening cycle. "squawk box" will be right back. . total transparency. straightforward is the way td ameritrade does business. simple, fair pricing. no hidden account fees.
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welcome back. things are going to get a lot more interesting in ten seconds. we'll get inflation numbers, the cpi, latest number that may tell us not just about inflation this in country but about the fed's future. rick santelli with us. let's get it. >> here we go. not like yesterday, folks, up 0.2% on headline.
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i'm talking down. down 0.1 when you strip out the important food and energy components. year over year, if you look at the headline is 2.6. that's pretty much right on. you can even say, oh, a smidge lower than expectations, if you remove food and energy. 1.6 year over year. also one could argue a smidge better. last look was 1.8. so you have the tale of two inflation stories. of course, further out on the pipeline seems to be underbid. pressure, what's going to squeeze through at least this month and show up on the more finished side, on the cpi side, not as threatening. we see the dollar is king. you know, the fed side, don't call it a tightening and we won't. but the discount rate becoming more normal yesterday, surprise. not in terms of what it did but when it did it, indeed, has helped give the dollar a bit of an afterthrust. remember, folks, whether it was
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higher interest rate or stronger dollar, these forces in the market have been at work for, you know, a solid month now in many ways. post-democrat we're still down a bit in equities. although i have to tell you that equities have come back a bit. maybe the most important aspect is we see the rayly a bit, putting a slowdown in what had been a rapid increase in rates. the big news yesterday on the discount rate normalization was a flattening of the yield curve from historic wide levels. and that proceactive force was two-year note selling off rate rising. >> reaction here, we have the gang here. ira, with options expiration, how is this going to play out? >> well, how's it going to play out? rick had it dead on. most important thing is to watch the yield curve today. when the fed minutes came out i was surprised we didn't see any flattening after those minutes.
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we got the flattening after reaction saw fed activity. if we start to reach deep in this curve, i would say the equity markets should have a pretty good rally. i think the dollar will wind up selling off. i think the yield curve will be the key after the discount rate hike. >> steve liesman, you're probably going through this release right now. what jumps out at you? >> being on vacation, i don't have my data with me. >> what? >> i thought you went on vacation with your data. >> i looked at my lap stop, said, i done need this thing so maybe that's the concession of the timing, the fed took me by price -- >> oh, it comes out. you were caught by surprise. >> at least on the day. >> you left your laptop at home. that's on the record, steve. >> didn't they call you personally with the number? >> no, no. but what i can see is the housing component is a big factor there, down 0.3%. that's a huge chunk of the cpi. and that's now showing up. i would like to point out, though, that for those who suggested earlier in our lengthy
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discussion here about why the fed moved because of the cpi number or it might have been because of the cpi number, this number here is in line with what the fed has said. the fed has been talking quite a bit about the chances that inflation will move down from here. that at least is the fed's forecast for now. and they came out with new forecasts on wednesday. it really shows very little inflation over the next three years. i don't think it's about -- >> you're telling all the conspiracy theorists on the trading floors to stuff it, right? >> you know, carl, if you want to use those words, that's -- that's okay. and i understand there's a trade in conspiracy theories. there's always this trading hysteria with the fed does stuff like this and then there's a near-term or medium-term trade in more sanity. >> i mean, look, we made the point this morning that the reaction is likely to be exaggerated because of the -- what's the word?
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new normal, i guess. but the anesthesia we've been in for the past year or so, things are going to be a little weird on the way out. >> yeah, i think that's right. and nobody, not even the fed, has a blueprint for how to get out of this. what they've done is thrown out a bunch of different ways they might do this. for example, the timing of, do they raise rates and sell assets at the same time? do they do the repos? do they do the term deposits? when and how do they calibrate this? do they calibrate this against a benchmark of the excess reserve requirements? these are huge questions. my understanding is the fed has essentially yet to figure out and really, as a result, really hasn't communicated with markets, which is why what i'm trying on say, you know, i hate to use a terrible metaphor like this, but this is more like the fed adjusting its tie. it doesn't mean it's taken off all it's clothes. >> there's a mental image. >> exactly. and there is a much broader discussion to be had. i believe that discussion begins
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a little more in earnest next week f congress asks bernanke the right questions. >> thank you for sticking around. >> without the clothes metaphor, though. another guest is former insider, joining us from chicago, randy kroszner, former federal reserve board governor, professor at chicago's booth school of business. welcome back. >> great to be back. i want to clarify something. we always wore our clothes and ties during the fmoc meetings. >> now you've opened up a whole can of worms. >> disrobing wasn't in the minutes so we figured that. i want to get your take. let's put market reaction aside for a second and just get your view on what they did yesterday. is it the right time and the timing of it, why -- why does that seem so curious? >> well, i think people seem to be surprised that the fed said they were going to act soon and they did act soon. i don't see why. just when the fed has said there's going to be an extended period of extraordinarily low
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interest rates, they should take that serious also. i think what the fed wanted to do was start to normalize, get things back to a regular footing. we reduced the spread between the federal funds rate and discount rate down to 25 basis points. now that markets are normalizing, it's easier to get credit from other sources besides the fed. moving the spread back up closer to traditional levels makes a lot of sense. just like with a lot of those other liquidity facilities we've had where we had high spreads when people came to borrow from the fed, because they couldn't borrow elsewhere. they were willing to pay those extra spreads. now with market normalization, people aren't borrowing at the asset back commercial paper facility, et cetera. same thing here, people should be -- >> how much of a commentary is it to you on the financial market stability right now? >> well, clearly, the fed thinks that we've seen a lot of normalization. i think we have. if you look at risk spreads, if you look at just the functioning of markets. it's dramatically different than a year ago. so starting on that gradual path
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towards normalization, as we have already with the closure of so many of the new credit facilities, this is just part of that. >> right. but as we all know, letting a lending facility close down is maybe like flying a single engine plane. bringing monetary policy back the way it once was is going to be like flying a triple seven. can you blame the market for questioning or pushing back against the, i will call it the fed spin, we've gotten over the past 12 hours? >> markets often push back against things. i think exactly as steve had said, there will be a little bit more calm as people look through this and realize, it is exactly as i said, a technical adjustment that is part of the process of normalization. and i think some people are caught by surprise that this wasn't done under regular meeting. my view of that is that it was purposely not announced although a regular meeting precisely because they saw it as a technical adjustments, as they do with many other technical
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adjustments. they're not announced at meeting. so this is to differentiate itself from a monetary policy decision. it's really -- >> so your point is to do it in the course of a meeting would have almost legitimized it or made it seem heavier than it was? >> yes. oh, gosh, they made this conscious decision about change in monetary policy, whereas there are many technical changes announced outside of the fmoc decision. this, i think, is seen as part of that. and that, i think, made the markets scratch their head a little bit. but if they scratch their heads a little more, they'll see that the reaction would have been much stronger if it had been done during a regular fmoc meeting. this is a sensible thing to do. >> randy, everybody we've had this morning has been talking about, it's just a normalization process. maybe that's right, maybe that's wrong. let's assume for a second that is right. what is the next step in normalization? is it not more -- reducing liquidity? is it not tightening? what's the next step in normalization? >> well, that's a key question.
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and steve liesman, i think, was exactly right on this. there's an exploration to exactly what the next step should be. when you look at the minutes, there was a discussion of different combinations of steps that could take us out from the extraordinarily low interest rate and high liquidity policies. could be -- and my guess is, it will be -- likely to be a combination of things. of starting to drain the liquidity through the reverse repurchase agreements, through increases in the interest rate on reserves, through some term deposits. i don't think the first step is going to be sell of securities. i think that will come much, much later. if it comes at all. because the fed's balance sheet will gradually run off over time. it will take a number of years. but, for example, mortgage-backed securities, their average duration is probably on the order of seven or eight years. grad gradually those would run off. >> randy, appreciate your insight on an important issue.
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we'll see what comes up next. hope you come back soon. randy kroszner joining us from chicago. futures this morning, things were a little squirrely earlier, before you woke up. asia was down, nikkei down 2%. europe bounced off the lows, though. although we were down, i would say 50 points below fair value at one point, we've recovered about 20 of that. and some of that is coming since cpi was announced. when we come back, pimco's bill gross will tell us why the fed's move is not the beginning of an imminent tightening cycle. hi, ellen! hi, ellen! hi, ellen! hi, ellen! we're going on a field trip to china! wow. [ chuckles ] when i was a kid, we -- we would just go to the -- the farm. [ cow moos ]
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welcome back to "squawk." if you're waking up wondering how the markets are taking the news from the fed last night, here's az look. futures have come well off their lows. that comes in part after the cpi rose 0.2% last month. the core rate without food and energy actually fell 0.1%. there was some scuttlebutt that maybe it was going to come in hot since we know the fed does get a sneak peek. that has not happened. then the new york fed president bill dudley just weighed in on the discount, calling it a very small, technical change, talking at an economic conference in puerto rico. want to get more from the bond king, joining us from newport beach, bill gross, co-founder of pimco. good to see you again. what a night, huh? so much to talk about. we're trying hard not to get wrapped up in the money market
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minutia, as someone just put it. what's important this morning as investors try to take stock? >> i think bill dudley is the guy, not that ben isn't the man, but this is the fed's version of groundhog day but it. bill dudley told us a few months ago that an extended period of time meant at least six months. that's the key. it means at least six months that the fed funds level stays where it is. last night we saw the shadow, or heard the phrase again, so we have at least six more months of zero degree interest rates. that's the key to focus on. >> is there a metric you think signals real rate movement? somebody early this morning suggested maybe it's three straight months of job growth. is there something like that in your head that would give us a sense it's close? >> historically it's focused on the unemployment rate. i mean, that's what garners the headlines and that's what the fed is concerned about, especially now that their
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independence is being threatened. historically it's been four to six months after the unemployment rate starts to go down. that's a critical question that's already started to go down, but many, including pimco, expect it to start to go back up again. so, i suspect that 2010 is going to be a period of time in which we have an extended period of zero percent interest rates. >> bill, has there -- the fed is saying they're going to have this extended period. you just mentioned it. has there ever been a cycle where the fed has actually gotten that forecast right and hasn't had to play catch-up and try to tighten more and more aggressively as time goes on? >> i don't think so. i don't think the fed has been perfect. certainly over the past 5, 10 #, 15 years or in terms of its history it's just a body of people and subject to persuasions and ups and downs of the economic cycle and the misdiagnosis of themselves. yes, they will miss them in terms of the perfect timing or the perfect rate.
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>> so, do you think investors should be positioning port foal yoes for curve steepening or flattening? >> i think a curve steepening. what we think we know is that quantitative easing, the $1.5 trillion of mortgages, yes, also treasuries and agencies is about to end. as that ends, then the check writing, the fed check writing, you know, four, five, ten, 30-year pieces of paper is over. that is an influence and has been an influence over the past month or so in terms of a steepening curve so that those that are expecting a flattening really need a fed tightening and they need some type of solution to this absence of fed check writing. i would say steepening, steepening, steepening. >> so further steepening, because i think part of the jitters of the market yoe nigov is the thought the curve would flatten, the thought the curve might invert sooner than was anticipated but you're saying
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the opposite shall happen so financial institutions can make good money off a further steepening of the curve? >> yes, i would say that. let me amend that. the curve is about as steep as it'ser been. i mean, the spread between fed funds and the long bond, if that's how you want to measure it, is 460 basis points. that's historic. so, to expect anything more, i think, is a stretch. but all the markets need, as you have mentioned, is a continuation of the existing spreads in order to make lots and lots of money. and all bond managers need is a continuation of the existing spreads in order to roll down that curve and make money as well. >> how about the effect on equities, bill, what are you telling clients this morning? >> i think that's a positive. i mean, zero to 25 basis points in terms of borrowing, you know, provides lever of risk assets. to the extent we stayed down there for six months and resembled punxsutawney bill,
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yes, that's a positive direction. >> even with a stronger dollar? >> yes. the stronger dollar is a wild card. eventually the u.s. economy, to the extent stocks are rel flekttive of the u.s. economy, we know it's 50/50 now, but to the extent the u.s. economy is reflective of that, then the stronger dollar is a negative for u.s. exports. we have to factor that in over the next 6 to 12 months. >> bill, to sort of, you know, clarify what you're saying. basically you're sort of uncertain then about your outlook for the economy because if you are kind of uncertain about the u.s. dollar and strengthening of it, therefore, you might not necessarily think there's a strong enough demand underlying to support those multinationals who might be hit with a headwind of a strengthening dollar if the economic fundamentals are not in place? >> sure. that's been our view for a long time. that's our new normal. we continue with that. that doesn't mean a recession. it means 3% growth over the next several quarters and then maybe back to 2% very static types of numbers. yes, it does indicate some
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economic clouds. therefore, another positive for the fed in items of maintaining its low rate. >> if this is chapter one in the new story, bill, what's next? what's the next incremental move? weave heard from steve liesman discount -- further discount moves maybe not absolute? is it something else? how do we know how we're moving along? >> yeah, i think that point about further discount rate moves -- you know, this particular one, and the timing, yes, was a little unusual and surprising, but i think it was a move to appease the three or four hots on the fed. yes, it gave them something. so i wouldn't expect another 50 or renormalization to 100 basis points. they've had their moment and we'll continue to see this type of spread and this continue to of -- >> just to follow up. if we're to make the move that the discount was not such a big day, therefore if woe go to a
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hundred or whatever it may be, is that also not a big deal or is that symbolic of something else? >> i think that's symbolic too. it is a penalty rate. you know, we're in a period of time where penalty rates, you know, don't mean as much as they did 12 months ago, and so, you know, let's get over it. >> we've got a lot to talk about over the weekend, that's for sure. thanks for the time. >> you're welcome. >> good to see you as always. bill gross from california. our cash and spin on the fed and how it will play out during the trading day. of course, the move lending some strength to the dollar. we'll see how it plays out today.
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time now for the trader's edge. joining us. all right. the big question is how does this play out, especially with expiration today? >> well, i don't think it's going to be a major factor. it was a signal from the fed in two ways. number one, the crisis is over. they had eliminated the penalty in the discount rate. they tried to take away the stigma. it's a symbolic rather than a strategic move. i think as steve liesman and others have indicated, they've had this in their pocket for a while. i think when they saw the ppi number, as inflationary and strong as it was, and as you aptly pointed out earlier this morning there are signs elsewhere around the globe, think they said, okay, let's play this trump card for now.
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tell everybody we're on alert. we'll see where we go. the key impact, melissa, i think will be if it further strengthens the dollar. it took it up to a dollar at the triple top. you're going to see pressure on oil, gold, and stocks again. >> we've got a lot of pressure. then we have this playing out. mine do you think we'll see the knee-jerk reaction of the markets of selling sort of the sectors that will be hurt by the strengthening dollar? >> no. i think what you saw is the dollar had a strengthening effect after the move. that's become a bit more muted and we'll watch. i would be more concerned about the dollar if things in europe began to get a little flakier. as said to carl in the past, the dollar-carry trade is a great risk. if there were to be an iran/israel move, you could lose
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a lot of points. >> art, have a great week. art cashin. >> we'll get more of the opinion on how the fed rate discount high will affect continuing trading in just a moment. [ male announcer ] right now mrs. jones is freeing herself from restrictive calling circles and switching her entire family to sprint.
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i want to get some final thoughts from our guest host richard a bernstein. at the end of the day are you going to change your portfolio after all that happened? >> no, not me. look, i think people shouldn't lose sight of what's going on here. this is a perfectly normal event in a relatively normal cycle. this is the beginning of the very long drawn out tightening cycle, very normal, change accordingly. but the notion of free money is now ending, and that period is ending. >> yeah. well, we got through a lot and covered a lot of various aspects of a pretty narrow story. i appreciate your coming in, rich. >> thanks very having me. >> we'll be back on monday. in the meantime "squawk on the street" is coming up next. live from the financial capital of the world, it's
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friday and "squawk on the street." good morning, everyone. i'm mark haines. 30 minutes before the opening bell. >> i'm erin burnett. so is this opening the door for more? we call it the shot heard round the world and, of course, we know when there's one shot, there's more. the consumer prices mark rose a little more than anticipated. inflation not an issue. >> ask not for who the dell tolls. the computer maker's profits slipped. trading could likely plummet as the most highly anticipated media event in sports history -- how's that for high person baably consider kicks off.

Squawk Box
CNBC February 19, 2010 6:00am-9:00am EST

News/Business. Becky Quick, Joe Kernen, Carl Quintanilla. Business news and talk as the trading day unfolds on Wall Street. (CC)

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